Financial Systems and Institutions Stud Name: Liang CHEN Stud ID: 270184LC USN: 0711866864223
investment projects than lenders. A borrower may have an entrepreneurial “gut feeling” that can not be communicated to lenders, or more simply, may have information about a looming financial risk to their firm that they may not wish to share with past or potential lenders. The problem with imperfect information is that information is a “public good”. If costly privately-produced information can subsequently be used at less cost by other agents, there will be inadequate motivation to invest in the publicly optimal quantity of information. Financial markets create their own incentives to acquire and process information for listed firms. The larger and more liquid financial markets become the more incentive market participants have to collect information about these firms. Financial intermediaries and financial markets resolve ex post information asymmetries and the resulting moral hazard problem by improving the ability of investors to directly evaluate the returns to projects by monitoring, by increasing the ability of investors to influence management decisions and by facilitating the takeover of poorly managed firms. When these issues are not well managed, investors will not be willing to delegate control of their savings to borrowers.
Economics of scale
A key objective for financial regulation and supervision is to increase the effective functioning of the financial system in order to enhance the ability to absorb shocks and maintain financial stability. As financial regulatory can control the financial intermediaries by one rules, they can control the economic well. We can think this in the goods market, the cost of produce 100 and 100000 radios is almost the same because of the same equipment and labor. The same in the financial, the more financial intermediaries take part in the process, the more return in the whole economic with low cost.
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Financial Systems and Institutions Stud Name: Liang CHEN Stud ID: 270184LC USN: 0711866864223
PART 3.
Strong expense management
Expense management is a mark for bank to show their management in business. Interest, salary and benefits, premises and fixed assets, other non-interest expense and taxation are all main expense in banks. How to management its own expense will tell investor how well they can allocate the investor’s money. The efficient bank is the get the greatest profit with the least cost, which shows that the bank services the investors well.
Clients relationship
Banks should establish, maintain, and enhance ongoing long-term multi-service partnership relationships with corporate clients. Private banking service is popular in modern society. Investors have the option right to choose their preferring bank, how to attract potential investors and maintain their existing investors are vital for banks. Not only banks should have good product, but they should keep their close relationship to their customer. Banks should always have more scientific and rational system of customer relationship management database. Technological systems and growth
Financial systems may affect technological innovation. By allowing diversification, financial systems allow savers to obtain their desired level of exposure to high risk/reward firms, potentially increasing the level of finance directed at such activities. Financial intermediaries are well suited to provide external finance to new firms that require staged finance because they can credibly commit to additional funding based on key benchmarks. Specialised intermediaries can improve the willingness of savers to provide finance to firms with innovative or novel business plans through monitoring and oversight activities. Financial markets are effective at financing industries where relatively little information or few data are available or where a diversity of opinion is persistent. This is because markets allow investors with similar views to form coalitions to finance a particular investment project. New investment
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Financial Systems and Institutions Stud Name: Liang CHEN Stud ID: 270184LC USN: 0711866864223
financed by financial intermediaries or markets is a channel for the diffusion of new technologies and productivity gains.
So technology improvement is quite important for banks. Talents
Talents are must anywhere, especially professional experts. Banks are always lack of expertise staff that can give investors more useful advice and gain more excellent results.
Capital allocation
Banks affect capital accumulation in three ways. First, financial systems lower the cost of channeling funds between borrowers and lenders, by reducing information and transaction costs. A decline in the cost of accessing finance frees up resources for other uses, including consumption, investment and capital accumulation.
Second, they can alter individuals’ and households’ saving decisions by making longer-term investments more attractive. If financial intermediaries and markets are unable to convince savers of the soundness of the investment projects that they are planning on funding, savers may choose to consume rather than save or place their savings in other less productive forms.
Third, bank affects capital accumulation by reallocating funds to their most productive uses, which raises the rate of return to saving. However, the effects of a change in the rate of return on saving are ambiguous. This is because higher rates of return increase the cost of consumption today or the cost of not saving, leading to more saving. But an increase in the rate of return to saving also means that individuals/households don’t need to save as much to achieve desired future levels of income. Empirically, the elasticity of saving with respect to rates of return is found to be small, suggesting that both effects are of approximately equal importance.
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Financial Systems and Institutions Stud Name: Liang CHEN Stud ID: 270184LC USN: 0711866864223
Input accumulation, or capital more broadly defined, can lead to a permanent increase in the long-run rate of economic growth if it has spill-over effects to other factors of production and/or productivity.
Viewed from another point, capital allocation can improvement the liquidity and the ability to afford risk. Managing global risk
Globalization has been a fashion word for the world, of course, risk is not an exception. With the rapid speed of financial innovation, the risk has change from domestic to global. How the managing global risk is a vital problem for the bank to afford crisis. In this financial crisis, many banks have been down. Establish strong system to afford risk is the way to live longer.
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Financial Systems and Institutions Stud Name: Liang CHEN Stud ID: 270184LC USN: 0711866864223
Conclusion:
In summary, financial intermediaries and financial markets can in many cases act as substitute sources of financial services. Lenders/savers in particular have a choice between the risk, return and liquidity offered by both segments of the financial system. Each segment is able to offer a different range of investments and offers services to firms that are not complete substitutes. Broadly speaking, financial markets provide lower cost arms length debt or equity finance to a smaller group of firms able to obtain such finance, while financial intermediaries offer finance with a higher cost reflecting the expense of uncovering information and ongoing monitoring. Financial intermediaries and markets may also provide complementary financial services to many firms. Financial innovation provides more invest forms to investors. There are also many influence caused by it. Financial regulatory enhance their responsibility and obligation to ensure the normal running of financial market and the right of investors. As the main form of financial intermediaries, banks should concentrate on managing key areas of operations and resources in order to guarantee investors’ profit.
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